Carbon Reduction CommitmentAEA is the Government adviser contracted to develop the CRC scheme

Stephen Boyle, Principal Consultant, Climate Change and Policy

1st June 2009

A world leadingenergy and climatechange consultancy

• Global business supporting public and private sectors

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environmental management

About AEA

AEA is supporting

DECC as it develops

the regulations

for CRC

What is the CRC?

• Mandatory auction-based emissions trading

• Enabling powers Climate Change Bill

• Public and private sector

• Covers all non-transport energy emissions

• Applies at highest UK parent organisation

• Requires participants to monitor energy use and trade emissions allowances

• Starts in April 2010 but preparation starts now

But do you qualify for CCA exemption?

No

Yes

You are covered

You are not covered

No

Total HHM electricity use > 6000MWh/year?

You are not covered

Yes

Qualification Process

-

Mandatory half hourly metered (HHM) electricity?

Declare exemptionBy 31st July 2011

Declare qualification statusApril – Sept 2010

What’s covered

CCA emissions

EUETS emissionsNon-core sources

Core sources

Based on emissions in the period April 2010 to March 2011

Reported by 31st July 2011

Based on emissions in the period April 2010 to March 2011

Reported by 31st July 2011

All energy consumed for non-transport purposes

•Electricity•Gas•Oil, diesel etc

• Financial year compliance cycle

• Purchase Allowances for the year

• Evidence pack and source list

• Report emissions by end July after the year end and surrender allowances

• Audit not verification

• Rules for renewable generation, export of power from own generation, heat from CHP

Annual reporting

Capped phase (auctions)

Capped phase (auctions)

Sales and recycling

April 2010 April 2011 April 2012 April 2013

Scheme starts

First sale (double)

First recycle (double)

Second sale (single)

Second recycle (single)

First auction (single)

Introductory phase (£12/t sales)Introductory phase (£12/t sales)

Stirling’s value at risk

• Stirling’s 2007/08 Energy usage kWh kgCO2- Electricity 19,142,427 10,279,484 - Gas 31,577,573 5,841,851- Oil 1,616,065 430,070- Renewable 0 0- Others 0 0- Total 52,336,065 16,551.405

• Stirling’s CRC Auctioning Revenue for the fixed price phase - 10/11 – 16,552 number of allowances at £12/CO2 - £198,624 – ±10% - VAR £39,725- 11/12 – 16,552 number of allowances at £12/CO2 - £198,624 – ±10% - VAR £39,725- 12/13 – 16,552 number of allowances at £12/CO2 - £198,624 – ±20% - VAR £79,450

• Stirling’s CRC Auctioning Revenue for the following 3 years (at 2.6% GDP*)- 13/14 – 16,552 number of allowances at £12.30/CO2 - £203,590 – ±30% - VAR £121,154- 14/15 – 16,552 number of allowances at £12.60/CO2 - £208,555 – ±40% - VAR £166,844- 15/16 – 16,552 number of allowances at £13.00/CO2 - £215,176 – ±50% - VAR £215,176

• Total Value at Risk for Stirling over 3 year fixed price period £158,900*HM Treasury Mid-Term Forecast Report Feb 2009

• Early action, prior to April 2011

• Percentage emissions reduction - absolute

• Percentage reduction in emissions/turnover - growth

• Performance is assessed against a 5 year rolling average

The league table

Early action

Growth metric

Absolute emissions

Early action

Growth metric

Absolute emissions

0%

10%

20%

30%

40%

50%

60%

Year (starting April)M

ax b

on

us/

pen

alty

(Double recycle)

2010 2011 2012 20142013

Recycle payments

Base payment• Each participant’s share of emissions in

2010/11 multiplied by total recycle pot each year

League table bonus/penalty2

• Annual assessment against metrics – your score

• Ranking of all participants – the league table• Bonus/penalty

Adjustment factor3 • Ensure sum of recycles equals total pot

1

In summary - what to do and when

Registration

Preliminary Report

Annual compliance

01/08 07/08 01/09 07/09 01/10 07/10 01/11 07/11 01/12 07/12

Emission period

Reporting period

Emission period

Reporting periodKey

HH Electricity

All energyEUETS,

CCA

Annual emissions, turnover, early action

Annual emissions, turnover

Key features

• Compliance preparation

- Registration

- 2010/11 footprint data (2010/11 will be base element for recycle payments)

- Annual compliance

• League table

- Metrics and emissions performance

- Carbon Trust standard and automatic meter reading

- Recycle payments and reputational impacts

• Landlord / tenant responsibilities

• Trading strategy and cash flow implications

• You should produce a detailed compliance action plan

- Milestones

- Data requirements

- Responsibilities

• Assess your readiness for scheme compliance

- Building on carbon targets

- Actions to overcome shortfalls

- Evidence pack requirements

- Confirm additional sources position

• AEA could support your formal submissions process

Compliance preparation

• Review significance

- Emissions within landlord’s responsibility

- Significance

- Risk of pass-through / lease strategy

Landlords and tenants

Responsibility for emissions will lie with the counter party to the

energy supply contract

Responsibility for emissions will lie with the counter party to the

energy supply contract

A successful trading strategy

• Understand your abatement options

• Forecast your business as usual emissions

• Understand how the sale/auction will work

• Recognise the risks- Others will be bidding in the auction so you may not get what you want

- The alternative to the sale is the secondary market/safety valve

Your approach to CRC

• The scheme has many opportunities to win or lose:

- League table – good emissions performance

- League table – early action metrics

- Landlord and tenant arrangements

- Non-core sources

- Successful trading strategy

A proactive approach to the CRC will reap greater

rewards than a simple compliance outlook

• Work out your organisation structure

• Know your emissions exposure

• Understand your compliance obligations

• Make sure your systems are in place to gather and manage data and forecast emissions

• Understand your abatement opportunities

• Take a proactive approach to the opportunities the scheme presents

Preparing for the CRC - Summary

Carbon Reduction Commitment

Stephen Boyle, Principal Consultant, Climate Change and Policy0870 190 6804, Stephen.Boyle@aeat.co.uk1st June 2009